Featured Product

    OSFI Identifies Focus Areas to Strengthen Third-Party Risk Management

    September 08, 2020

    OSFI published the key findings of a study on third-party risk management. The study was conducted in 2019-20 among 55 federally regulated financial institutions, with 47% of them being deposit-taking institutions and the remaining being the insurance institutions. As a result of this study, OSFI has identified five focal points for effective management of third-party risk: risk assessment, monitoring and incident management, data security and access, continuity of critical operations, and cloud risk management. For further insights on the perspectives and work of OSFI in this area, OSFI will soon release a discussion paper on technology risk, which includes a segment on third-party risk.

    The federally regulated financial institutions frequently cite third-party risk as a top or key risk due to the increasing engagement with, and reliance on, third parties. The following are the key insights that OSFI derived from the study on the third-party risk management:

    • Risk Assessment—Prudent risk management involves focusing on the highest risks at certain providers while providing adequate oversight for providers with lower risk profiles. Developing risk management frameworks with a range of risk categories can help federally regulated financial institutions to more effectively manage the risk from third parties.
    • Monitoring and Incident Management—Establishing a process to regularly monitor risks against desired standards and measures can help federally regulated financial institutions to more effectively identify whether and when a third party is creating risk. The results highlight that 36% of the respondents indicated that they maintained a watchlist—that is, a list of third parties identified for enhanced monitoring. Reasons cited to maintain a watchlist include criticality and significance to the operations of a federally regulated financial institution and elevated risks of financial, operational, or reputational damage to the federally regulated financial institution.
    • Data Security and Access—Lack of adequate controls and monitoring of third-party access, storage, and use of federally regulated financial institution information may expose federally regulated financial institutions to higher risk of data breaches and loss of confidentiality. Security risk assessments are the first step in protecting federally regulated financial institution data as these can aid federally regulated financial institutions understanding if the risk is being sufficiently managed by the third party. The results highlight that 83% of the respondents cite information security controls and performance as the top assessment factor during the due diligence phase prior to onboarding a third party. While 86% of the respondents include information security controls and performance in due diligence refreshes, 23% perform real-time security monitoring of third parties.
    • Continuity of Critical Operations—Identifying critical third-party dependencies and conducting joint exercises with these parties can help to develop and reinforce the recovery processes, communication channels, authority levels, and trusted relationships that are necessary to work cohesively and collaboratively through a disruption. There were 17 respondents with the management of critical third parties in scope of the study. The results highlight that 53% of the respondents have business continuity plans, recovery time objectives, and service-level agreements for critical services in place with third parties while 82% have established specific recovery time objectives and recovery point objectives with third parties for critical business services. 
    • Cloud Risk Management—Cloud adoption has moved past proof-of-concept testing and toward an established or emerging practice of assessment and onboarding at federally regulated financial institutions. While managing cloud services is a shared responsibility between the federally regulated financial institution and the cloud service provider, developing cloud-specific standards may enable federally regulated financial institutions to increase interoperability and optimize cloud adoption while operating within the federally regulated financial institution's risk appetite and tolerances. There were eight respondents with cloud risk management in the scope of the study. The results provide data related to cloud adoption challenges, challenges in cloud computing operations, and cloud availability and exit strategy.

     

    Related Link: Results of Study (PDF)

     

    Keywords: Americas, Canada, Banking, Insurance, Third-Party Risk, Cloud Computing, Outsourcing Arrangements, Technology Risk, Fintech, Regtech

    Related Articles
    News

    EC Publishes Regulations Supplementing Investment Firms Directive

    The European Commission (EC) published three Delegated Regulations (2021/2153, 2021/2154, and 2021/2155) to supplement the Investment Firms Directive (IFD or Directive 2019/2034).

    December 07, 2021 WebPage Regulatory News
    News

    FSB Report Examines Trends in Non-Bank Intermediation in Americas

    The Financial Stability Board (FSB) published a report that presents results of the sixth non-bank financial intermediation monitoring exercise in the Americas.

    December 06, 2021 WebPage Regulatory News
    News

    BIS Discusses Regulatory Approach for Non-Bank Intermediation

    The Bank for International Settlements (BIS) published the December issue of the Quarterly Review, which analyzes the non-bank financial intermediation mechanisms that could undermine financial stability.

    December 06, 2021 WebPage Regulatory News
    News

    BoE Calls for Vendor Input for Data Collection Transformation Program

    The Bank of England (BoE) opened the Alternative Liquidity Facility, or ALF, for deposits from the participating UK-based Islamic banks for the first time.

    December 03, 2021 WebPage Regulatory News
    News

    APRA Sets LAC for D-SIBs, Proposes to Enhance Crisis Preparedness

    APRA issued a letter on the loss-absorbing capacity (LAC) requirements for domestic systemically important banks (D-SIBs) and published a discussion paper, along with the proposed the prudential standards on financial contingency planning (CPS 190) and resolution planning (CPS 900).

    December 02, 2021 WebPage Regulatory News
    News

    EBA Proposes Standards on Interest Rate Risk in the Banking Book

    The European Banking Authority (EBA) launched three consultations on technical aspects of the revised framework capturing interest rate risks for banking book (IRRBB) positions, with the comment period ending on April 04, 2022.

    December 02, 2021 WebPage Regulatory News
    News

    EC to Review Macro-Prudential Rules while ESRB Assesses Policy Stance

    The European Commission (EC) launched a call for evidence, until March 18, 2022, as part of a comprehensive review of the macro-prudential rules for the banking sector under the Capital Requirements Regulation (CRR) and Directive (CRD IV).

    December 01, 2021 WebPage Regulatory News
    News

    EBA Sets Out List of Banks for Mandatory Basel III Monitoring Exercise

    The European Banking Authority (EBA) published the sample of banks for the mandatory Basel III monitoring exercise, which will refer to the December 2021 data.

    December 01, 2021 WebPage Regulatory News
    News

    FED Revises Complex Institution Liquidity Monitoring Report for Banks

    The Board of Governors of the Federal Reserve System (FED) is adopting a proposal to revise and extend for three years the Complex Institution Liquidity Monitoring Report (FR 2052a) for banks.

    December 01, 2021 WebPage Regulatory News
    News

    FSB Sets Out Good Practices for Crisis Management Groups

    The Financial Stability Board (FSB) published a report that sets out good practices for crisis management groups.

    November 30, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7758